On April 18, the Council of Ministers approved a four-fold salary increase for public sector employees and an increase in the daily transportation allowance. To secure the necessary funds for this initiative, the council decided to raise the exchange rate based on which customs are calculated (also called the “customs dollar”). This change is expected to take effect by the beginning of May.

LIMS has cautioned that the increase in the “customs’ dollar” will fall short in funding the augmented public sector wages. Instead, this adjustment will inadvertently benefit smugglers and customs evaders, while penalizing legitimate businesses that are unable to compete with those evading customs. Furthermore, this change is unlikely to boost government revenues. To enact substantive reforms, Lebanon must adopt a low and uniform customs rate. A lower rate would incentivize individuals to declare their imports and discourage customs evasion, while a flat rate would curtail the exemption loopholes that enable such practices.

In the absence of sufficient funds, the government will inevitably turn to borrowing from the central bank to finance the salary increases. This can be done either in Lebanese pounds, which risks exacerbating inflation, or in US dollars, which would deplete the already dwindling foreign exchange reserves and place depositors in jeopardy of losing their remaining dollar deposits. Central bank financing of salary raises not only deepens Lebanon’s crisis but also erodes depositor funds and hastens the erosion of the Lebanese pound.

The squandering of Special Drawing Rights (SDRs) received from the International Monetary Fund (IMF) serves as a stark testament to the inefficiency of government spending. Lebanon received a total of $1.139 billion in SDRs in September 2021, with $747 million already expended. Shockingly, these funds were misused, with a significant portion allocated to subsidizing the failed electricity monopoly. Another segment was directed towards subsidizing medicine, resulting in their scarcity within pharmacies. Moreover, a fraction of the funds was utilized to subsidize wheat, ostensibly to maintain affordable bread prices, but in practice, the subsidized wheat found its way into pastries and patisseries sold at full price.

The wanton mismanagement of these critical funds, coupled with unsustainable policies, highlights the pressing need for comprehensive reforms in Lebanon. The government must prioritize prudent spending and responsible allocation of resources to effectively address the country’s economic crisis and safeguard the well-being of its citizens.

• Lebanon Is Looking For A Way Out Of Its Economic Crisis In Light Of Obstacles That May Impede The Progress Of Reforms, April 3, 2023: Al Hurra, TV Interview AR
• Salama Supports Employees And Reduces The Market Dollar: “Financing” The Crisis, April 4, 2023: Al Modon, Article AR
• Increasing Salaries In The Public Sector Will Cost Lebanon More Collapse And Will Make It Difficult To Reach An Agreement With The International Monetary Fund, April 5, 2023: MTV, TV Interview AR
• How Was The SDR Money Spent And How Much Is Left? April 5, 2023: VDL, Article AR
• How Was The SDR Money Spent And How Much Is Left? April 5, 2023: VDL, TV Interview AR
• For These Reasons, The Exchange Rate Has Decreased, And What Does It Have To Do With “Haircut” On public sector salaries? April 6, 2023: News Folio, Article AR
• Is Lebanon’s bankruptcy inevitable after losing two-thirds of its money? April 11, 2023: Independent Arabia, Article AR
• What Are The Hopes Of Reaching An Agreement With The International Monetary Fund? With The Economist, Dr. Patrick Mardini, In Discussing Politics, April 11, 2023: VDL, TV Interview AR
• Fake Salary Increase…The Government Treats Inflation With Inflation, April 19, 2023: VDL News, Article AR
• Will The Minister Of Finance Raise The Customs Dollar To 60 Thousand LBP? Mardini to Al Diyar: Raising The Customs Dollar Promotes Customs Evasion And Strengthens Illegal Economy At The Expense Of The Legal Economy, April 19, 2023: Addiyar, Article AR
• Mardini To “Voice of Beirut International”: Raising The Customs Dollar Will Weaken The Economic Movement In The Country, April 19, 2023: SBI, Article AR
• In This Case… Will The Dollar Reach 200,000 Pounds? April 20, 2023: Lebanon Debate, Article AR
• What Is The Impact Of The Financial Incentive Package That Was Presented On The Financial Reality? April 20, 2023: VDL, TV Interview AR
• Raising The “Customs” And Pensions Is Matched By The Collapse Of The LBP And The Rise Of The Dollar, April 20, 2023: Lebanese Forces, Article AR